Urban Economics 6th Edition by Arthur O'Sullivan. This is a brief presentation of Chapter 9. Zoning and Growth Controls with some cases from Indonesia and some other parts of the world.

1. John William Girsang // Paramita EstihandayaniEkonomi Perkotaan
02.11.2012
CHAPTER 9:
ZONING AND
GROWTH CONTROLS

2. Zoning and Growth Controls:
Introduction
 Does land go to the highest bidder?
 Government role in urban land market—maybe not
if regulated.
 Zoning to separate different land uses into separate
zones.
 Commercial, industrial, and residential (low and high
density)
 Growth controls limit population growth
 Tax new development (impact fees); limit building
permits; limit urban services to selected areas; urban
growth boundaries
 Who wins and who loses?—what are the trade-offs

3. The Early History of Zoning
 Comprehensive zoning started in 1916 (in New York City
and 8 other cities)—and by 1936, zoning had spread to
over 1,300 cities.
 The basic idea of zoning is to separate land uses that are
‗incompatible‘ in some senses
 Innovations in transportation increased the location
options for business, setting the stage for industrial
zoning.
 Truck: replaced horse cart, causing industry to move out of
central city to suburbs near residential areas.
 Bus: before bus flexibility—low income (high density)
households between streetcar spokes; after workers could
locate elsewhere.
 Zoning to exclude industry and high-density housing?

4. Zoning as Environmental Policy
 Industrial Pollution
 Zoning separates residents from
pollution
 Zoning doesn‘t reduce pollution but
moves it around buffer
 Economic approach: internalize
externality with pollution tax
 Retail Externalities: congestion,
noise, parking conflicts.
 High-density housing: congestion,
parking, blocked views
 Alternatives: performance
standards for traffic, noise, parking
views.

5. Fiscal Zoning
 Some communities eagerly host
firms that generate fiscal surplus.
 Fiscal deficit: tax contribution
less than cost of public services.
 Minimum lot size zoning (MLS):
 Large household in a small dwelling is more likely to
generate a fiscal deficit for the local govt.
 MLS exploits complementarity of housing and land
 As a rule—market value of the property is about 5 times
the value of land: v* = 5 • r• s
 Target lot size:
 v* = target property value; r = price of land/acre; s = lot
size (in acres)
 Example: s = $200,000 / (5 x $ 80,000) = 0.50
r
v
s
5
*

6. Minimum Lot Zoning and
the Space Externality
 Externality: larger lot generates more space and
higher utility for neighbors (i.e. your large lot
increases the value of your neighbor‘s house)
 External benefit means that privately determined lot
sizes are smaller than socially efficient size; people
ignore benefits to their neighbors
 Externalities cause inefficiencies
 MLS: increase space and enforce reciprocity in
space decisions

7. Provision for Open Space
 Public land: parks and greenbelts
 Restrictions on private land:
preservation of farm or forest
land—through restrictions on
subdivision for residential or
commercial uses.
 What is the efficient level of open
space?
 Marginal benefit: marginal cost ( in
this case MC=marginal value of the
next acre of land)
 How does zoning affect the
efficiency of the land market? Or
should the govt. buy the land?
 Pay full cost of the land? Or shift the
cost of open space provision to
private land owner?
deadweight loss

8. Legitimate exercise of the police power of
local government—60 years of legal decisions.
 Substantive Due Process
 Equal Protection
 Just Compensation
The Legal Environment of Zoning

9. Legal Environment:
Substantive Due Process
 Law must serve legitimate public
purpose using reasonable means.
 Ambler 1924: Zoning promotes health,
safety, morals, and general welfare
 No consideration of cost, only benefit
 Benefit analysis—can be monetary,
physical, spiritual, and aesthetic benefits.
 Example: 1880—San Francisco passed
laws to explicitly segregate the
Chinese; when declared
unconstitutional – passed zoning law
banning laundries in certain
neighborhoods.
 Chinese laundries in SF segregated—public
welfare.

10. Legal Environment:
Equal Protection
 Law must be applied in non-discriminatory
fashion
 Does exclusionary zoning constitute discrimination?
 Euclid: effects of zoning on outsiders unimportant
 Los Altos: discrimination on basis of income are legal
 State courts adopt more activist role
 Mount Laurel (NJ): City accommodates ―fair share‖ of
low-income residents
 Livermore (CA): consider interests of insiders and
outsiders.

11. Legal Environment:
Just Compensation
 Should property owners be compensated for losses
in value from zoning? Taking clause if govt converts
land from private to public use owners should be
compensate.
 Three Rules to determine if compensation needed:
1. Compensation required for physical invasion
(occupation) of land (i.e. not just restricting private
use)
2. Harm prevention rule: Compensation not required if
zoning promotes public welfare.
3. Diminution of value and reasonable beneficial use
 Compensation required if property value drops by sufficiently
large amount
 No guidance on what‘s large enough
 Rule is not widely applied

12. Houston: City Without Zoning
 Land use controlled by voluntary agreements among
landowners (covenants) incentive to negotiate
restrictions
 Coase Theorem—will develop and enforce voluntary
agreement (contract) if externalities are large enough and
property rights assigned to solve externalities problem
 Residential: detailed restrictions on design, appearance,
maintenance
 Industrial: limit activities
How does Houston compare to zoned cities?
 Similar distribution of industry and retailers
 More strip development along arterial routes
 Wide range of densities of apartments
 Larger supply of low income (high density)
housing (smaller lots)

13. Houston Land Use - 2008

14. Growth Control: Urban Growth Boundaries
 Policies to restrict the amount
of developed land and thus
their population.
 To simplify matters we will
assume that all city residents
are renter, and land is owned
by the absentee landowners.
 1991 survey: One quarter of
cities used urban service
boundaries to limit their land
areas.
 Restrict urban services such as
roads, water, and sewers to
certain areas beyond a certain
point

15. Growth Control: Urban Growth Boundaries
Precise Growth Control:
Limiting Land Area and Lot Size
 Growth control in one city displaces workers to the other city
 The immediate effect of the policy is to generate a utility gap between
the two cities
 Prices adjust to generate locational equilibrium (the first axiom of urban
economics).
 Each uncontrolled city would experience a smaller increase in its
workforce and thus a smaller decrease in utility.
Jakarta Urban Growth (1976 – 1989 – 2004)
Source: http://earthobservatory.nasa.gov/

16. Growth Control: Urban Growth Boundaries
 Growth Control Policy,
decreases the utility of workers
throughout the region
 The workers in the
uncontrolled city lose,
because their city grows, moving
further downward along the
negatively sloped utility curve.
 Obviously, landowners who
owned land just outside the
boundaries are losers, and in
contrast, people who owned
land inside the boundary are
winners

17. Urban Growth Boundary and Density
 Suppose the city uses a
growth boundary, but does
not restrict lot size
 As before, The utility gap
increase the price of land in
the control city.
 A growth boundary is a blunt
tool to deal with distortion for
2 reasons:
 Although a growth boundary
may change density in the
correct direction, it may go too
far or not far enough
 A growth boundary creates
distortions of its own

18. Portland’s Urban Growth Boundary
 Portland growth boundary differ
from the growth- boundary policy
we have discussed, The Portland
boundary is extended at the
population of the metropolitan
increases.
 The boundary is combined with a
number of policies that promote
rather than inhibit increases in
density.
 In other words, the growth boundary
is an integral part of urban planning,
the set of policies that determine the
spatial arrangement of activities in
metropolitan

19. Municipal vs. Metropolitan Growth Boundaries
 The basic logic of growth boundaries doesn’t change
with the level of geography.
 There are two difference between a municipal and
metropolitan boundary:
 People are more mobile between municipalities than
between metropolitan areas.
 Some of the people displaced by a municipal
boundary will relocate to other municipalities in the
same metropolitan area

20. Trade- Offs with
Growth Boundaries and Open Space
 How does a growth boundary affect
homeowners?
 How do the benefits of growth
compare to the cost?
 The trade-off is that the limited supply
of developable land leads to higher
prices and higher density--less private
space
 The authors conclude that a modest
relaxation of the open space and
boundary policies of Reading,
England would generate a net gain of
$384 per household per year, about
2% of annual income.
Sourcce: http://www.sightline.org
Seattle Area Growth Boundary
1991-2001

21. Other Growth—Control Policies
 Limiting Building Permits:
 Like growth boundary, a
limit on building permits
displaces households from
one city to another.
 Development Fees
 Although a growth
boundary may change
density in the correct
direction, it may go too far
or not far enough
 A growth boundary
creates distortions of its
own

22. SUMMARY
1. Zoning is a blunt policy to control pollution because it just
move the pollution around. An alternative policy is to
combine pollution taxes with zoning
2. Local government can use minimum lot-size zoning to
exclude land user who would generate a fiscal deficit –
paying less in taxes than they get in public services
3. The use of zoning to provide open space generates
excessive amount of open space because voters don‘t
bear the full cost of the public good
4. In two-city region, an urban growth boundary in one city
decreases utility in both cities and increases land rent in
the city with boundary
5. A limit of building permits increases the equilibrium price
housing and decreases the price of vacant land.

23. Sekian dan Terima
Kasih
© 02.11.12